6. The Santa Fe Mutual Automobile Insurance Company has the following financial statements. 2016 2015
Net Premiums Written 48,612 47,398
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Income Statement ($ mils.)
Premiums Earned 37,094 36,297
Loss Expenses 25,379 23,771
Operating Expenses 15,921 15,484
Total Policy Expenses 41,300 39,255
Net Underwriting Gain/Loss (4,206) (2,958)
Net Investment Income 5,340 3,512
Operating Income before taxes 1134 554
Dividends to Policyholders 0 0
Income Tax Recovered (Plus) 1,003 492
Net Income $2,137 $1,046
Ave Investment Yield 6.29% 3.83%
Balance Sheet (mils.) 2016 2015
Assets
Cash & ST Investments 1,345 1,397
Bonds 41,766 43,834
Common & Preferred Stock 43,120 47,863
Equity in Insurance Subsidiaries 34,842 31,529
Other Assets 17,422 14,175
Total Assets $138,495 $138,798
Liabilities
Claims & Claim Expenses 28,566 28,534
Unearned Premiums 11,518 11,101
Other Liabilities 15,780 19,568
Total Liabilities 55,864 59,203
Equity Accounts 82,631 79,595
Total Liabs. & Equity 138,495 138,798
6a. Calculate and evaluate the Net Underwriting Margin (NUM); Loss Ratio
Expense Ratio; Combined Ratio; and Overall Profitability Ratio for each year
using the information in the income statement above. Also calculate the firm’s OPM, OROA, ROA, ROE, and equity multiplier (EM).
Recall NUM = (Premiums Earned – Total Policy Expenses) / Total Assets
NUM 2016 __________ NUM 2015 ______________
Recall: expense ratio = (operating expenses/net premiums written) and loss ratio = (loss expenses/premium earned), and combined ratio = (loss ratio + expense ratio), and overall profitability ratio = {[100% - Combined Ratio%] + (Investment Yield% } for the firm each year) Also calculate asset turnover (revenues/total assets), net profit margin [net income/revenues], OROA (operating income/total assets), return on assets (net income/total assets) and return on equity (net income/equity accounts) & equity multiplier (total assets / equity).
2016 2015
Expense ratio
Loss ratio
Combined ratio
Average Investment Yield
Overall Profitability
Dupont Analysis:
Asset Turnover
Net Profit Margin
OROA
ROA
ROE
Equity Multiplier (EM)
6b. Analyze the trends in all of the ratios, and the other financial information provided. What do they reveal for trends over time including trends as well on the firm’s balance sheet? What areas of strength & weakness are revealed? What advice for improvement would you give?
Part 5: Module 7: Mutual Funds & Security Firms (see Module 7 lecture notes, pp. 10 to 12)
7. a. Briefly discuss different types of mutual funds that mutual fund companies offer including: (1) index funds, (2) actively managed diversified funds; (3) mutual funds with a diversified allocation; (4) sector investing; (5) style investing including different types of style investing (value, growth, blend, aggressive growth); (6) hybrid asset allocation or balanced funds; (7) target date funds; (8) Socially Responsible Mutual funds (often called impact funds).; and (9) Multi-alternative Strategy Funds and Commodity Funds.
b. Why are index funds cheaper than actively managed funds?
